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Financial Focus: 10th January 2011

BP oil leak shuts down 95% of production;
US jobs data disappoints investors;
Portugal under fresh pressure to seek bailout;
US retail investors back in the market;
China suffers as rumours of property tax emerge.

Oil markets are preparing to face the prospect of losing up to 15% of US crude after a pipeline leak forced BP to shut down 95% of production from North America’s biggest field. State and federal regulators will join BP in investigating the leak, but the leak will have to be fixed within a few days to stop an additional upward pressure on oil prices.

Asian markets have slowed, and European indexes are likely to react in a similar way, as investors are disappointed by the US jobs data on Friday, and because of ongoing concerns over the Eurozone’s debt and Asian inflation problems.

Pressure is growing on Portugal from Germany, France and other countries to seek financial help from the EU and IMF to help prevent the region’s sovereign debt crisis from spreading.

Increasing speculation that China, India and Indonesia will raise interest rates to combat inflation in the region has put pressure on Asian markets overnight. China’s key index slumped 1.6% during the last session, breaking the important 2,800 points level, as fears of a heavy property tax hit the headlines in regional newspapers. The reports said that Chongqing City in the south west of the country will be the first to introduce the measures seen necessary to stem the meteoric rise in property prices.

European stocks are seen mostly unchanged today, following strong gains last week and ahead of this week’s Eurozone debt-auctions and the start of the US earnings season. Financial spreadbetters expect the FTSE to open 3 to 5 points up this morning, with other European markets a couple of points either side of flat.

US equity mutual funds have started the year with their biggest inflow of cash in three years, indicating that retail investors are returning after a long absence. With the American Association of Independent Investors’ survey showing that 58.8% of investors were ‘bullish’ as of the 30th December 2010, there is fresh evidence that QE2 has convinced people that double-dip recession is unlikely.

The euro, just off the session’s fresh 4-month lows against the dollar, remained under some pressure but was holding fairly steady ahead of Eurozone government bond auctions this week. The common currency was trading at $1.2911 against the US dollar from $1.2905 in late New York trade on Friday. The dollar index, which tracks the currency against a basket of its peers, is little changed overnight.

Oil prices climbed for the first time in three days after an Alaskan pipeline carrying about 15% of US crude output was shut following a leak. Commentators feel that the problem is likely to be solved relatively quickly, and that prices will drop back to $88 per barrel, the level that it had been trading at previously, as soon as production is back to normal.

Industrial metals are mixed but gold is up 0.5% at $1,375 an ounce as the precious metal, once again, receives a boost from the inflation concerns and worries over Eurozone debt. Copper in London dropped for a fifth day, heading for the longest losing streak in seven months, as a decline in China’s imports threaten demand.

FTSE 100: 5,984 -0.58%
S&P 500: 1,272 -0.18%
Eurofirst 300: 1,144 -0.25%
Nikkei 225: 10,541 +0.11%
Shanghai Comp: 2,808 -1.10%
Dow Jones: 11,675 -0.19%

$ per €: 1.2904 +0.19%
$ per £: 1.5537 +0.10%
¥ per $: 83.11 -0.12%
¥ per €: 107.25 +0.07%
€ per £: 1.2036 -0.10%

WTI Crude: $88.90 +0.99%
Brent Crude: $93.79 +0.49%
Gold: $1,369 +0.05%
Copper: $4.27 0.00%
Corn: $6.01 +1.05%

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